The Answer Guy
(MONEY Magazine) – Q How do I find out who the top mutual fund managers are and what stocks they're buying? I'm looking for common patterns so I can find the best returns without incurring too much risk. —Scott Rhubright, York, Pa.
Answer Getting information about managers' records and their stocks is no hassle. But basing your picks on theirs can boost the peril you're trying to avoid.
To find top managers, don't focus on who has been hot lately. After all, hot streaks inevitably go cold. Instead, look at the 36 actively managed stock funds in the MONEY 70. Their low expenses, fair play for shareholders and consistent strategies improve the chances that their managers will do well. Morningstar.com is the easiest place to find what these and other managers are buying; in the Portfolio section of each fund's snapshot, you'll see top holdings and icons indicating purchases and sales. A big catch: The data are often reported quarterly, with a two-month delay, showing you not what managers are buying but what they bought a while back (and quite possibly sold again later).
You're more likely to learn strategies from investing pros by reading their commentary (try their websites) about why they buy what they're buying. Or just invest in a few of the MONEY 70 funds. There's no need to be a copycat investor if you can hire a master to invest for you at a reasonable price.
Q What's the scoop on dollar-cost averaging? Does it really give a good rate of return? How long does it take on average to see profits from dollar-cost average investments? —Anthony Barone, Location withheld
Answer Sounds like someone's been feeding you the standard line that dollar-cost averaging will boost your profits. It likely won't, but don't give up on DCA. It's still a good idea.
Dollar-cost averaging is the practice of investing at regular intervals in fixed amounts. Instead of putting a lump sum of, say, $6,000 in a mutual fund, you invest $500 each month over the course of a year. You may have heard that since the fund fluctuates in price, you'll juice returns by buying fewer shares when they're expensive and more when they're cheap. But since investments generally rise more than they fall, one big purchase will likely snag cheaper shares than you'd get by taking your time.
Still, dollar-cost averaging can help protect you from disaster—and yourself. When you're buying bit by bit, you don't have to worry that a security will plummet right after you've made a big purchase, says University of Utah professor Robert Dubil. The routine also keeps you from chasing returns when stocks rise and bailing when they fall. "It helps you avoid mistakes," says Dubil. "It forces you to stick to a plan."
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